UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File Number: 0-13273
June 30, 1998
F & M BANK CORP.
Virginia 54-1280811
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Drawer F
Timberville, Virginia 22853
(540) 896-8941
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes ..X. No ....
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at June 30, 1998
Common Stock, par value - $5 818,654 shares
<PAGE> 1
F & M BANK CORP.
INDEX
Page
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statements of Income - Six Months
Ended June 30, 1998 and 1997 2
Consolidated Statements of Income - Three Months
Ended June 30, 1998 and 1997 3
Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997 5
Consolidated Statements of Changes in Stockholders'
Equity - Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibit and Reports on Form 8K 16
SIGNATURES 18
<PAGE> 2
Part I Financial Information
Item 1 Financial Statements
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
Interest Income
Interest and fees on loans $ 5,744 $ 5,227
Interest on federal funds sold 77 39
Interest on interest bearing deposits 35 8
Interest and dividends on investment securities
Taxable 1,063 1,351
Nontaxable 8 7
------- ------
Total Interest Income 6,927 6,632
------- ------
Interest Expense
Interest on demand accounts 247 247
Interest on savings deposits 480 510
Interest on time deposits 1,795 1,722
------- ------
Total interest on deposits 2,522 2,479
Interest on short-term debt 109 72
Interest on long-term debt 610 562
------- ------
Total Interest Expense 3,241 3,113
------- ------
Net Interest Income 3,686 3,519
Provision for Loan Losses 80 90
------- ------
Net Interest Income after Provision for Loan Losses 3,606 3,429
------- ------
Noninterest Income
Service charges 203 189
Other 67 77
Security gains (losses) 1,570 (25)
------- ------
Total Noninterest Income 1,840 241
------- ------
Noninterest Expense
Salaries 831 762
Employee benefits 218 292
Occupancy expense 87 79
Equipment expense 123 139
Other 595 468
------- ------
Total Noninterest Expense 1,854 1,740
------- ------
Income before Income Taxes 3,592 1,930
Provision for Income Taxes 1,186 579
------- ------
Net Income $ 2,406 $ 1,351
======= ======
Per Share Data
Net Income $ 2.94 $ 1.65
======= ======
Cash Dividends $ 1.50 $ .48
======= ======
Equivalent Shares Outstanding 818,654 818,654
======= =======
The accompanying notes are an integral part of these statements.
<PAGE> 3
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Amounts)
Three Months Ended
June 30,
1998 1997
Interest Income
Interest and fees on loans $ 2,906 $ 2,658
Interest on federal funds sold 20 19
Interest on interest bearing deposits 16 3
Interest and dividends on investment securities
Taxable 548 651
Nontaxable 4 3
------- ------
Total Interest Income 3,494 3,334
------- ------
Interest Expense
Interest on demand deposits 124 123
Interest on savings accounts 239 259
Interest on time deposits 913 862
------- ------
Total interest on deposits 1,276 1,244
Interest on short-term debt 54 40
Interest on long-term debt 271 275
------- ------
Total Interest Expense 1,601 1,559
------- ------
Net Interest Income 1,893 1,775
Provision for Loan Losses 35 45
------- ------
Net Interest Income after Provision for Loan Losses 1,858 1,730
------- ------
Noninterest Income
Service charges 108 104
Other 29 38
Security gains 72 10
------- ------
Total Noninterest Income 209 152
------- ------
Noninterest Expense
Salaries 423 388
Employee benefits 108 138
Occupancy expense 43 41
Equipment expense 60 70
Other 327 251
------- ------
Total Noninterest Expense 961 888
------- ------
Income before Income Taxes 1,106 994
Provision for Income Tax 327 304
------- ------
Net Income $ 779 $ 690
======= ======
Per Share Data
Net Income $ .95 $ .84
======= ======
Cash Dividends $ 1.21 $ .26
======= ======
Equivalent Shares Outstanding 818,654 818,654
======= =======
The accompanying notes are an integral part of these statements.
<PAGE> 4
F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
June 30, December 31,
ASSETS 1998 1997
---------------------
Cash and due from banks $ 3,583 $ 3,574
Federal funds sold 114 2,255
Interest bearing deposits in banks 1,546 827
Securities held to maturity (note 2) 13,198 17,545
Securities available for sale (note 2) 22,925 21,171
Other investments 1,550 1,612
Loans, net of unearned discount (note 3) 129,678 123,190
Less reserve for loan losses (note 4) 1,184 1,121
------- -------
Net Loans 128,494 122,069
Bank premises and equipment 1,934 1,883
Other real estate 457 454
Interest receivable 1,244 1,278
Other assets 1,025 1,142
------- -------
Total Assets $176,070 $173,810
======= =======
LIABILITIES
Deposits
Noninterest bearing demand $ 14,574 $ 14,388
Interest bearing
Demand 19,335 19,650
Savings deposits 27,360 27,024
Time deposits 67,041 65,289
------- -------
Total Deposits 128,310 126,351
Short-term debt 4,472 5,204
Long-term debt 18,188 16,977
Accrued expenses 2,145 2,376
------- -------
Total Liabilities 153,115 150,908
------- -------
STOCKHOLDERS' EQUITY
Common stock $5 par value, 818,654 shares
issued and outstanding 4,093 4,093
Surplus 867 867
Retained earnings 16,714 15,536
Unrealized gain on securities available for sale 1,281 2,406
Total Stockholders' Equity 22,955 22,902
------- -------
Total Liabilities and Stockholders' Equity $176,070 $173,810
The accompanying notes are an integral part of these statements.
<PAGE> 5
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
Cash Flows from Operating Activities:
Net income $ 2,406 $ 1,351
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 105 121
Amortization of security premiums 54 52
(Gain) loss on security transactions (1,570) 25
Provision for loan losses 80 90
(Increase) decrease in interest receivable 33 (44)
Decrease (increase) in other assets 120 (45)
Increase in accrued expenses 440 84
Losses (gains) on limited partnership investments 62 (2)
Gain on sale of land (10)
Total Adjustments (686) 281
------- -------
Net Cash Provided by Operating Activities 1,720 1,632
------- -------
Cash Flows from Investing Activities:
Proceeds from sales of investments available for
sale 4,323 5,695
Proceeds from maturity of investments available
for sale 3,161 1,381
Proceeds from maturity of investments held to
maturity 7,057 1,617
Purchase of investments available for sale (9,879) (4,285)
Purchase of investments held to maturity (2,370) (2,435)
Net decrease in federal funds sold 2,141 2,394
Net increase in loans (6,529) (5,679)
Purchase of property and equipment (133) (84)
Net decrease (increase) in interest bearing bank
deposits (719) 330
Sale of other real estate 11
Net Cash Used in Investing Activities (2,937) (1,066)
------- -------
Cash Flows from Financing Activities:
Net increase (decrease) in demand and savings
deposits 206 (535)
Net increase in time deposits 1,753 2,416
Net increase (decrease) in short-term debt (732) 373
Increase in long-term debt 5,147
Repayment of long-term debt (3,936) (1,719)
Payment of dividends (1,212) (360)
------- -------
Net Cash Provided by Financing Activities 1,226 175
------- -------
Net Increase in Cash and Cash Equivalents 9 741
Cash and Cash Equivalents, Beginning of Period 3,574 3,568
------- -------
Cash and Cash Equivalents, End of Period $ 3,583 $ 4,309
======= =======
Supplemental Disclosure
Cash paid for:
Interest expense $ 3,228 $ 3,105
Income taxes 800 564
The accompanying notes are an integral part of these statements.
<PAGE> 6
F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
Balance, beginning of period $ 22,902 $ 19,126
Net income 2,406 1,351
Change in unrealized appreciation on securities
available for sale, net of taxes (1,125) 559
------- -------
Total comprehensive income 1,281 1,910
Dividends declared (1,228) (393)
------- -------
Balance, end of period $ 22,955 $ 20,643
======= =======
The accompanying notes are an integral part of these statements.
<PAGE> 7
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES:
The consolidated financial statements conform to generally accepted
accounting principles and to general industry practices. In the
opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of June 30, 1998 and the results of operations for the six
month periods ended June 30, 1998 and June 30, 1997. The notes
included herein should be read in conjunction with the notes to
financial statements included in the 1997 annual report to
stockholders of the F & M Bank Corp.
The Company does not expect the anticipated adoption of any newly
issued accounting standards to have a material impact on future
operations or financial position.
NOTE 2 INVESTMENT SECURITIES:
The amounts at which investment securities are carried in the
consolidated balance sheets and their approximate market values at
June 30, 1998 and December 31, 1997 follows:
1998 1997
Carrying Market Carrying Market
Value Value Value Value
Securities Held to Maturity
U. S. Treasury and
Agency obligations $ 7,816 $ 7,841 $ 9,283 $ 9,314
State and municipal 250 250 405 405
Other securities 2,474 2,485 4,147 4,167
Mortgaged-backed
securities 2,658 2,658 3,710 3,701
-------- -------- ------- -------
Total $ 13,198 $ 13,234 $ 17,545 $ 17,587
======= ======= ======= =======
1998 1997
Market Market
Value Cost Value Cost
Securities Available for Sale
U. S. Treasury and
Agency obligations $ 5,973 $ 5,924 $ 3,494 $ 3,471
Equity securities 9,219 7,241 10,436 6,634
Mortgage-backed
securities 4,630 4,615 3,110 3,088
Other securities 3,103 3,083 4,131 4,101
------- ------- ------- -------
Total $ 22,925 $ 20,863 $ 21,171 $ 17,294
======= ======= ======= =======
<PAGE> 8
F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
June 30, December 31,
1998 1997
Real Estate
Construction $ 4,819 $ 4,708
Mortgage 76,690 73,611
Commercial and agricultural 29,491 27,049
Installment and Consumer Demand Notes 17,844 16,977
Credit cards 767 818
Other 67 27
------ -------
Total $129,678 $123,190
======= =======
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the
periods ended June 30, 1997 and 1996 follows:
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1997 1996
Balance, beginning of period $1,121 $ 1,003 $1,055 $ 862
Provisions charged to operating
expenses 80 90 45 25
Net (charge offs) recoveries
Loan recoveries 30 20 2 4
Loan charge-offs (47) (25) (14) (7)
----- ------ ----- ------
Total Net Charge-offs* (17) (5) (12) (3)
----- ------ ----- ------
Balance, End of Period $1,184 $ 1,088 $1,088 $ 884
===== ====== ===== ======
* Components of net charge-offs:
Real estate - Construction $ - $ - $ - $ -
Real estate - Mortgages - - - -
Commercial 4 (4) (5) -
Installment (21) (1) (7) (3)
----- ------ ----- ------
Total $ (17) $ (5) $ (12) $ (3)
<PAGE> 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The financial condition of F & M Bank Corp. remained strong throughout the
first six months of 1998. Annualized growth in total assets for the first six
months slowed to 2.60% and annualized growth in deposits for this time period
was 3.10%. Net income for the first six months of 1998 increased $1,055,000 or
78.09% as a result of a $989,000 after tax change in security gains and losses.
The increase in capital of .23% is attributed to regular and special dividends
totaling $1,228,000 and a $1,125,000 net decrease in unrealized gains on
securities available for sale.
Results of Operations - Six Months Ending June 30, 1998
The dollar amount of the tax equivalent net interest margin increased
$162,000 or 4.47% compared to the same period in 1997. Yields on earning assets
were virtually unchanged between periods. An increase of eleven basis points in
the cost of funds was primarily the result of prepayment penalties incurred to
refinance a portion of the subsidiary Bank's long-term debt. The increase in the
net interest margin is solely the result of an increase in the volume of total
earnings assets. A schedule of the net interest margin for 1998 and 1997 is
shown on page 14 as Table 1.
Noninterest income increased $1,599,000 in the first six months of 1998.
This increase is attributed to a combination of a $1,570,000 gain on securities
transaction in 1998 compared to a $25,000 loss in securities transaction in
1997.
Noninterest expense increased 6.55% in 1998. The principal reason for this
was a 27.14% increase in other noninterest expenses. Components of this increase
included accruals for year 2000 testing and remediation and stationary, supplies
and advertising related to the subsidiary Bank's 90th anniversary. Employee
salaries and benefits declined .47% due to the Company's use of Trigon stock
received in the demutualization to offset health insurance expenses.
Result of Operations - Quarter Ending June 30, 1998
Net income for the quarter ending June 30, 1998 increased 12.90% over
earnings in the same quarter of 1997. Net interest income increased due to
increases in the level of earning assets. Noninterest income increased during
1998 due to increased security gains compared to 1997. Although the Company's
overhead costs increased due to the factors noted above, they continue to be low
relative to its peer group.
Financial Condition
Securities
The Company's securities portfolio is held to assist the Company in
liquidity and asset liability management. The securities portfolio consists of
investment securities (commonly referred to as "securities held to maturity")
and securities available for sale. Securities are classified as investment
securities when management has the intent and ability to hold the securities to
maturity. Investment securities are carried at amortized cost. Securities
available for sale include securities that may be sold in response to general
market fluctuations, general liquidity needs and other similar factors.
Securities available for sale are recorded at market value. Unrealized holding
gains and losses on available for sale securities are excluded from earnings and
reported (net of deferred income taxes) as a separate component of shareholders'
equity. As of June 30, 1998, the market value of all securities available for
sale exceeded their amortized cost by $2,062,000 ($1,281,000 after the
consideration of income taxes). This excess is the result of unrecognized gains
in the value of equity securities, primarily stocks of financial institutions
held by the Company. Management has traditionally held debt securities
(regardless of classification) until maturity and thus it does not expect the
minor fluctuations in the value of these debt securities to have a direct impact
on earnings.
<PAGE> 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Securities (Continued)
Investments in securities decreased $2,593,000 (6.70%) in the first six
months of 1998. Maturities and sales of securities have been used to fund
continued strong loan demand. The Company has invested in relatively short-term
maturities due to uncertainty in the direction of rates. This philosophy allows
for greater flexibility in an environment of rapidly changing rates and has
served the Company well over the years. Of the investments in securities
available for sale, 40% are invested in equities which are dividend producing
and subject to the dividend exclusion for taxation purposes. The Company
believes these investments render adequate returns and have resulted in
significant increases in value.
Loan Portfolio
The Company operates in an agriculturally dominated area which incudes the
counties of Rockingham, Page and Shenandoah in the western portion of Virginia.
The Company does not make a significant number of loans to borrowers outside
its primary service area. The Company is very active in local residential
construction mortgages. Commercial lending activities include small and medium
sized businesses within the service area.
The principal economic risk associated with the loan portfolio is the
ability of its borrowers to repay. The risk associated with real estate and
installment notes to individuals is based upon employment, the local and
national economies and consumer confidence. All of these affect the ability of
borrowers to repay indebtedness. The risk associated with commercial lending is
substantially based on the strength of the local and national economies. A large
percentage of agricultural loans are made to poultry growers. In the past two
years, the poultry industry has suffered due to high grain prices, excess
supplies of all types of meat and high mortality rates among poults. In
addition to direct agricultural loans, a significant percentage of residential
real estate loans and consumer installment loans are made to borrowers employed
in the agricultural sector of the economy. The company continues to monitor its
past due loans closely and has not experienced an increase in loan delinquencies
as a result of these economic factors.
The first six months of 1998 saw continued strong loan demand as loans grew
at an annualized rate of 10.53%. Funding for the increased loan volume was made
possible by the growth in time deposits, sales and maturities of securities and
acquisition of additional long-term debt. Overall, management has been quite
pleased with the loan program and believes that loan growth will continue
throughout 1998.
Nonperforming loans include nonaccrual loans, loans 90 days or more past due
and restructured loans. Nonaccrual loans are loans on which interest accruals
have been suspended or discontinued permanently. Restructured loans are loans
which have changed the original interest rate or repayment terms due to
financial hardship. Loans 90 days or more past due totaled $688,000 at June 30,
1998 compared to $825,000 at December 31, 1997. The Company had no nonaccrual or
restructured loans at June 30, 1998.
<PAGE> 11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Loan Portfolio (Continued)
Real estate acquired through foreclosure was $27,000 at June 30, 1998 and
December 31, 1997. All foreclosed property held at June 30, 1998 was in the
Company's primary service area. The Company's practice is to value real estate
acquired through foreclosure at the lower of (i) an independent current
appraisal or market analysis less anticipated costs of disposal, or (ii) the
existing loan balance. The Company is actively marketing all foreclosed real
estate and does not anticipate material write-downs in value before disposition.
An inherent risk in the lending of money is that the borrower will not be
able to repay the loan under the terms of the original agreement. The allowance
for loan losses (see subsequent section) provides for this risk and is reviewed
periodically for adequacy. While lending is geographically diversified within
the service area, the Company does have some concentration of loans in the area
of agriculture (primarily poultry farming) and related industries. Management
recognizes these concentrations and considers them when structuring its loan
portfolio. As of June 30, 1998, management is not aware of any significant
potential problem loans in which the debtor is currently meeting their
obligations as stated in the loan agreement but which may change in future
periods.
Allowance for Loan Losses
Management evaluates the loan portfolio in light of national and local
economic trends, changes in the nature and value of the portfolio and industry
standards. Specific factors considered by management in determining the adequacy
of the level of the allowance include internally generated loan review reports,
past due reports, historical loan loss experience and individual borrowers
financial health. This review also considers concentrations of loans in terms of
geography, business type and level of risk. Management evaluates nonperforming
loans relative to their collateral value and makes the appropriate adjustments
to the allowance for loan losses when needed.
The provision for loan losses and changes in the allowance for loan losses
are shown in note 4, page 8.
The allowance for credit losses of $1,184,000 at June 30, 1998 was up
$63,000 from its level at December 31, 1997. The allowance was equal to .91% of
total loans at June 30, 1998 and December 31, 1997. The Company believes that
its allowance should be viewed in its entirety and, therefore, is available for
potential credit losses in its entire portfolio, including loans, credit-related
commitments and other financial instruments. In the opinion of management, the
allowance, when taken as a whole, is adequate to absorb reasonably estimated
credit losses inherent in the Company's portfolio.
Deposits and Long-Term Debt
The Company's main source of funds is customer deposits received from
individuals, governmental entities and businesses located within the Company's
service area. Deposit accounts include demand deposits, savings, money market
and certificates of deposit. The Company realized annualized deposit growth of
3.10% in the first six months of 1998. Deposit growth continues to be difficult
to achieve due to the increasing number of financial institutions competing in
the Bank's primary service area. Deposit growth was mainly in the area of
certificates of deposits and was a result of special promotions designed to
attract new deposits.
<PAGE> 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Deposits and Long-Term Debt (Continued)
The Company offers repurchase agreements (a/k/a "repos") to customers
desiring such investments. Repos are designed for companies and individuals
desiring a higher rate of return than traditional deposit accounts and who will
accept the risk of not being covered by FDIC insurance.
Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be
an important mechanism in funding real estate loan growth in the area. The
Company's subsidiary bank borrows funds on a fixed rate basis and uses these
borrowings to make fixed rate loans with a fifteen year repayment term. As an
alternative, borrowers may opt for a twenty year repayment term in which only
the first ten years have a fixed rate. This program allows the bank to match the
maturity of its fixed rate real estate portfolio with the maturity of its debt
and thus reduce its exposure to interest rate changes. Additional borrowings
obtained during the first six months of 1998 totaled $5,147,000, of which
$2,147,000 was for refinancing of existing debt. Normal repayments (in excess
of amounts paid to refinance debt) have totaled $1,789,000 so far this year.
Capital
The Company seeks to maintain a strong capital position to expand
facilities, promote public confidence, support current operations and grow at a
manageable level. As of June 30, 1998, the Company's total risk based capital
ratio was 19.05%, far above the regulatory minimum of 8.00%. The ratio of total
capital to total assets was 13.04% at June 30, 1998, which exceeds that of the
Company's peers. As part of the 90th anniversary celebration, the Company
declared a special one time dividend of $.90/share. This dividend was funded
from the sale of appreciated securities. Recurring dividends for the year of
1998 total $.60/share compared to $.48/share in 1997. Earnings have been
sufficient to allow the increase in dividends in 1998 over those in 1997.
Liquidity
Liquidity is the ability to meet present and future financial obligations
through either the sale or maturity of existing assets or the acquisition of
additional funds through liability management. Liquid assets include cash,
interest bearing deposits with banks, federal funds sold, investments and loans
maturing within one year. The Company's ability to obtain deposits and purchase
funds at favorable rates determines its liquidity exposure. As a result of the
Company's management of liquid assets and the ability to generate liquidity
through liability funding, management believes that the Company maintains
overall liquidity sufficient to satisfy its depositors' requirements and meet
its customers' credit needs.
Additional sources of liquidity available to the Company include, but are
not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company also maintains lines of credit with
correspondent financial institutions. The Company's subsidiary bank also has a
line of credit with the Federal Home Loan Bank of Atlanta that allows for
secured borrowings. In the past, growth in deposits and proceeds from the
maturity of investment securities have been sufficient to fund most of the net
increase in loans and investment securities.
<PAGE> 13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Interest Rate Sensitivity
In conjunction with maintaining a satisfactory level of liquidity,
management must also control the degree of interest rate risk assumed on the
balance sheet. Managing this risk involves regular monitoring of the interest
sensitive assets relative to interest sensitive liabilities over specific time
intervals.
At June 30, 1998 the Company had a negative gap position. This liability
sensitive position typically produces an unfavorable contribution to earnings
during a period of increasing rates. With the largest amount of interest
sensitive assets and liabilities repricing within five years, the Company
monitors these areas very closely. Early withdrawal of deposits, prepayments of
loans and loan delinquencies are some of the factors that could affect actual
versus expected cash flows. In addition, changes in rates on interest sensitive
assets and liabilities may not be equal, which could result in a change in net
interest margin. While the Company does not match each of its interest sensitive
assets against specific interest sensitive liabilities, it does monitor closely
the maturities of loans, investments and time deposits to limit interest rate
risk and the financial effect of market rate changes.
A summary of asset and liability repricing opportunities is shown on page 15
as Table II.
Disclosure of Year 2000 Issues
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has completed the
first phase of the assessment and continues to monitor changes. The Company
currently believes that costs of addressing this issue will not have a material
adverse impact on the Company's financial position. However, if the Company and
third parties upon which it relies are unable to address this issue in a timely
manner, it could result in a material financial risk to the Company. In order to
assure that this does not occur, the Company plans to devote all resources
required to resolve any significant year 2000 issues in a timely manner.
Effect of Newly Issued Accounting Standards
The Company does not believe that any newly issued but as yet unapplied
accounting standards will have a material impact on the Company's financial
position or operations.
Securities and Exchange Commission Web Site
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including F & M Bank
Corp., and the address is (http://www.sec.gov).
<PAGE> 14
TABLE I
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
Rate Related Income
Loans 1 $125,792 $ 5,757 9.15% $ 114,764 $5,244 9.14%
Federal funds sold 2,819 77 5.46% 1,449 39 5.38%
Bank deposits 1,399 35 5.00% 297 8 5.39%
Investments
Taxable 26,926 855 6.35% 34,579 1,132 6.55%
Partially taxable 1 8,288 292 7.05% 7,045 305 8.66%
Tax exempt 1 391 12 6.14% 338 10 5.92%
----- ----- ---- ----- ----- ----
Total Earning Assets 165,615 7,028 8.49% 158,472 6,738 8.50%
--------- ----- --------- -------- ----- ------
Interest Expense
Demand deposits 19,699 247 2.51% 19,866 247 2.49%
Savings 27,178 480 3.53% 28,661 510 3.56%
Time deposits 66,831 1,795 5.37% 64,444 1,722 5.34%
Short-term debt 4,296 109 5.07% 2,969 72 4.85%
Long-term debt 17,461 610 6.99% 17,364 562 6.47%
------ ----- ---- ------ ----- ----
Total Interest Bearing
Liabilities 135,465 3,241 4.78% 133,304 3,113 4.67%
------- -------- ------ --------- ----- ------
Net Interest Margin 1 $ 3,787 $3,625
======== =====
Net Yield on Interest
Earning Assets 1 4.57% 4.57%
==== ====
1 On a taxable equivalent basis assuming a 34% tax rate.
<PAGE> 14 (Continued)
TABLE I (Continued)
F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(Dollar Amounts in Thousands)
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
Average Income/ Rates Average Income/ Rates
Balance Expense Balance Expense
Rate Related Income
Loans 1 $127,155 $ 2,913 9.16% $ 116,364 $2,666 9.16%
Federal funds sold 1,464 20 5.46% 1,359 19 5.59%
Bank deposits 1,224 16 5.23% 195 3 6.15%
Investments
Taxable 27,525 442 6.42% 32,857 546 6.65%
Partially taxable 1 9,336 144 6.17% 7,239 151 8.34%
Tax exempt 1 377 6 6.37% 405 6 5.93%
----- ----- ---- ----- ----- ----
Total Earning Assets 167,081 3,541 8.48% 158,419 3,391 8.56%
-------- ----- ------ --------- ----- ------
Interest Expense
Demand deposits 19,865 124 2.50% 19,520 123 2.52%
Savings 26,835 239 3.56% 28,895 259 3.59%
Time deposits 67,451 913 5.41% 64,496 862 5.34%
Short-term debt 4,369 54 4.94% 3,222 40 4.97%
Long-term debt 17,472 271 6.20% 16,909 275 6.51%
------ ----- ---- ------ ----- ----
Total Interest Bearing
Liabilities 135,992 1,601 4.71% 133,042 1,559 4.69%
------- -------- ----- -------- ----- ------
Net Interest Margin 1 $ 1,940 $1,832
======== =====
Net Yield on Interest
Earning Assets 1 4.64% 4.63%
==== ====
1 On a taxable equivalent basis assuming a 34% tax rate.
<PAGE> 15
TABLE II
F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
JUNE 30, 1998
(In Thousands of Dollars)
0 - 3 4 - 12 1 - 5 Over 5 Not
Months Months Years Years Classified Total
Uses of Funds
Loans:
Commercial $19,601 $ 1,612 $10,958 $ $ $32,171
Installment 2,381 783 14,727 20 17,911
Real estate 6,347 9,715 46,062 16,705 78,829
Credit cards 767 767
Interest bearing
bank deposits 1,546 1,546
Investment securities 1,500 8,267 16,243 894 10,769 37,673
Federal funds sold 114 114
------ ------ ------ ------ ----- ------
Total 32,256 20,377 87,990 17,619 10,769 169,011
-------- -------- -------- -------- ------- --------
Sources of Funds
Interest bearing
deposits 19,335 19,335
Regular savings 27,360 27,360
Certificates of
deposit $100,000
and over 761 3,951 1,854 6,566
Other certificates of
deposit 8,771 34,263 17,441 60,475
Short-term borrowings 4,472 4,472
Long-term debt 896 2,622 11,566 3,104 18,188
------ ------ ------ ------ ----- ------
Total 61,595 40,836 30,861 3,104 136,396
-------- -------- -------- ------- ----- ---------
Discrete Gap (29,339) (20,459) 57,129 14,515 10,769 32,615
Cumulative Gap (29,339) (49,798) 7,331 21,846 32,615
Ratio of Cumulative Gap
to Total Earning
Assets (17.36%) (29.46%) 4.34% 12.93% 19.30%
Table II reflects the earlier of the maturity or repricing dates for various
assets and liabilities at June 30, 1998. In preparing the above table no
assumptions are made with respect to loan prepayments or deposit runoffs. Loan
principal payments are included in the earliest period in which the loan matures
or can be repriced. Principal payments on installment loans scheduled prior to
maturity are included in the period of maturity or repricing. Proceeds from the
redemption of investments and deposits are included in the period of maturity.
<PAGE> 16
Part II Other Information
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders - On April 11, 1998, the stockholders
held their annual meeting. The
following item was approved by the
shareholders by the required majority:
1) Election of the Board of Directors
as proposed in the proxy material
without any additions or
exceptions.
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on 8-K
(a)Exhibits
3 i Articles of Incorporation of F & M Bank Corp. are
incorporated by reference to Exhibits to F & M
Bank Corp.'s Form S14 filed February 17, 1984.
3 ii Bylaws of F & M Bank Corp. are incorporated by reference
to Exhibits to F & M Bank Corp.'s Form S14
filed February 17, 1984.
21 Subsidiaries of the small business issuers are incorporated
by reference to Exhibits to F & M Bank Corp.'s 1995 Form
10-KSB filed March 26, 1996.
27 Financial Data Schedule attached.
(b)Reports on Form 8-K
The Company filed an 8-K on April 11, 1998 regarding a special $.90
dividend payable to shareholders of record on April 24, 1998, payable
on May 5, 1998
<PAGE> 17
EXHIBIT INDEX
Exhibit
Index Page Number
27 Financial Data Schedule for the quarter ending 19
June 30, 1998
<PAGE> 18
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F & M BANK CORP.
JULIAN D. FISHER
Julian D. Fisher
President and Chief Executive Officer
NEIL W. HAYSLETT
Neil W. Hayslett
Vice President and Chief Financial Officer
Date August 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from F & M
Bank Corp. Form 10QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,583
<INT-BEARING-DEPOSITS> 1,546
<FED-FUNDS-SOLD> 114
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,925
<INVESTMENTS-CARRYING> 13,198
<INVESTMENTS-MARKET> 13,234
<LOANS> 129,678
<ALLOWANCE> 1,184
<TOTAL-ASSETS> 176,070
<DEPOSITS> 128,310
<SHORT-TERM> 4,472
<LIABILITIES-OTHER> 2,145
<LONG-TERM> 18,188
0
0
<COMMON> 4,093
<OTHER-SE> 18,862
<TOTAL-LIABILITIES-AND-EQUITY> 176,070
<INTEREST-LOAN> 5,744
<INTEREST-INVEST> 1,071
<INTEREST-OTHER> 112
<INTEREST-TOTAL> 6,927
<INTEREST-DEPOSIT> 2,522
<INTEREST-EXPENSE> 3,241
<INTEREST-INCOME-NET> 3,686
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 1,570
<EXPENSE-OTHER> 1,854
<INCOME-PRETAX> 3,592
<INCOME-PRE-EXTRAORDINARY> 2,406
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,406
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.94
<YIELD-ACTUAL> 4.57
<LOANS-NON> 0
<LOANS-PAST> 688
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,121
<CHARGE-OFFS> 47
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 1,184
<ALLOWANCE-DOMESTIC> 1,184
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
